Kinked - According to the kinked-demand theory each firm...

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Kinked Demand Theory of Oligopoly As mentioned above, there is no single theory of oligopoly. The two that are most frequently  discussed, however, are the  kinked-demand theory  and the  cartel theory.  The kinked-demand  theory is illustrated in Figure 1  and applies to oligopolistic markets where each firm sells a  differentiated product.
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Unformatted text preview: According to the kinked-demand theory, each firm will face two market demand curves for its product. At high prices, the firm faces the relatively elastic market demand curve, labeled MD 1 in Figure 1 . Figure 1 Profit maximization by an oligopolistic firm facing a kinked-demand curve...
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This note was uploaded on 11/19/2011 for the course ECO 1310 taught by Professor Staff during the Fall '10 term at Texas State.

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